CURRENT EAST GERMAN ECONOMIC SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001100370001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: November 16, 2016
• Document Release Date: February 24, 2000
• Sequence Number: 1
• Publication Date: January 8, 1962
• Content Type: BRIEF

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NORORN/CONTINUED CONTROL
CIA/RR-CB-62-4~. Copy No.-2
8 January 1962
CURRENT SUPPORT BRIEF
CURRENT EAST GERMAN ECONOMIC SITUATION
OFFICE OF RESEARCH AND REPORTS
CENTRAL INTELLIGENCE AGENCY
This report represents the immediate views of the
originating intelligence components of the Office
of Research and Reports. Comments are solicited.
This document contains information affecting the national defense of
the United States, within the meaning of the espionage laws, Title 18
USC, Sections 793 and 794, the transmission or revelation of which
in any manner to an unauthorized person is prohibited by law.
- ~ 7/ /-') ~-
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--.SECRET
NOFORN/CONTINUED CONTROL
CURRENT EAST GERMAN ECONOMIC SITUATION
As the time approaches when the East Germans must decide on an
economic plan for 1962, the regime continues to face unresolved ques-
tions of economic policy and uncertainty in its foreign economic rela-
tions. The economy did not do too badly in 1961, although the per-
formance was not up to plan. The problems faced were somewhat aggra-
vated by the Berlin crisis, but are basically those that would have
occurred regardless of any special outside factors. The general un-
certainty created by the Berlin situation has affected planning more
than it has affected the industrial growth of the economy. The re-
ports on planning for 1962 indicate indecision about whether to follow
Ulbricht's line and plan a higher rate of growth for.1962 than was
planned for 1961 or. whether to adopt a plan closer to the actual rate
of growth in 1961.
Industrial production in 1961 is claimed to have increased by
6.2 percent over that in 1960 (in 1960, the claimed rate of growth was
8.3 percent).* The situation in industry has not worsened since 13
August and even appears to have improved somewhat--the value of out-
put in.October, 'the last month for which detailed statistics are avail-
able, reached the highest level of the year, breaking the usual pat-
tern of a drop in production at the beginning of each quarter. The
basic materials industries in general kept close to the annual plan
figures throughout the year. In other respects, the economic situa-
tion is not satisfactory. Although detailed information has been
scarce and slow in coming, the main weaknesses are clear from the
constant flow of party officials' criticism which concentrated on the
investment goods industries, construction, and agriculture. These
sectors have been sources of difficulty for the past two years and
will continue to be so in 1962.
The economic performance in .1961 was expected by the "realists"
in the East German regime, who recognize that there are basic factors
preventing the rapid economic growth envisioned by Ulbricht. These
factors are shortages of manpower--which affect especially the metal-
working industry and construction--and, the lack of reserves of unused
capacity in most industrial branches. The East Germans are no longer
suffering a loss of labor through emigration, but even with -the bor-
der closed, they can expect a continuing loss (about 0..7 percent per
year through 1965) simply as a result of the age structure of the pop-
ulation. The lack of reserve capacity has become increasingly clear
in 1960 and 1961.
With the general lag in the production of investment goods and
in construction, the industrial, investment program is being directed
mainly to the basic materials industries, such as chemicals and metal-
lurgy, because of their importance in East Germany's exports to the
.USSR and because of the effort to reduce dependence on West Germany
for certain chemicals and high quality steel products..In 1961 the
regime directed investments mainly to certain priority projects in
those industries and achieved favorable results. Installation of
steel mill equipment appears to be progressing according to original
plans, although this was not true a year ago. Output in both metal-
lurgy and chemicals increased last year as rapidly as projected in
the annual plan--or even slightly more rapidly.
These rates are based on official gross production figures and
would be somewhat lower if adjustments were made for double count-
ing and the exclusion of handicrafts production.
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Although economic growth in 1961 reflects the basic limitations,
the situation has been aggravated by the forced collectivization of
1960 and by political measures relating to the Berlin crisis. These
include the closing of the Berlin sector border in August 1961 and
the attempt to make the East German economy independent of Western
imports. The closing of the sector border involved specific costs
in transportation, arising out of the need to bypass West Berlin, as
well as the tangible advantage of preventing further losses of labor.
Some cost, not easily assessed, has been incurred in the effort to re.-
duce East German dependence on interzonal trade and to find substitutes
at home or in the Bloc for materials previously imported from the West.
Still harder to assess is the effect of popular attitudes. The grow-
ing bitterness and resentment of the population are evident, but there
does not seem to have been any marked deterioration in work habits or
discipline.
The effects of the low level of popular morale are most apparent
in agriculture and construction, as was the case even before the bor-
der was closed. Construction workers, accustomed to a five.-day week,
are now being forced to work a six-day week in order to reduce the
lag in the construction program. The farm population is generally
dissatisfied and regime efforts to instill- a "collective" spirit have
been unsuccessful.
At present the most serious problems in the East German economy
are in agriculture. Mismanagement, peasant disaffection brought on
by collectivization, and bad weather combined in 1961 to cause con-
siderable crop losses and a continuing fodder shortage. Production
of both grain and, potatoes was lower than in 1960, possibly by as
much as 10-15 percent. The fodder shortage and the poor care given
to collectively- held livestock have led to some reduction in the weight
of slaughter animals, and East German officials are predicting some
decline in animal. numbers in 1962.
The main aim of East German agricultural policy in 1962 will be
to improve efficiency on the collective farms. The regime will have
to concentrate on improving the administration of collectives and
may have to raise and revise prices in order to give the farmers some
incentive to increase output. Attempts to consolidate. existing col-
lectives into larger units and to transform the simple loose collec-
tives into fully socialized farms were not pushed in 1961, and the
regime had to overlook the expansion of private plots and herds at
the expense of the collectives. Any crackdown would cut too deeply
into production, but new half-way measures may be attempted this year
to restrict private plots and herds.
In the absence of detailed data on food production and imports
there is no clear basis for a final estimate of the trend in food
consumption in 1961. However, the available information clearly shows
no decline in food supplies to the population--in fact, there probably
was a slight increase. West German calculations of 1961 food price
increases in East Germany applied to the claimed increase in retail
food sales, indicate a rise of 3 percent in urban food consumption
in the GDR. Supplies of particular commodities, especially potatoes
and butter, were spotty throughout 1961, however, and the situation
will probably become worse in early 1962 as a result of the poor
harvest. Informal rationing of these same foodstuffs has been in
effect since last summer. The same was true in 1960, but the short-
ages appear to be more widespread at present. Although the shortages
are caused partly by a poor distribution system and overtaxed transport
facilities, an increase in imports in 1962 will be necessary to mai.n-
tain present consumption levels.
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The supply of other consumer goods continues to improve, although,
as in the case of foodstuffs, local shortages are common because of
the inefficiency of the distribution system and the reluctance of the
regime to establish prices that would balance supply and demand., Such
shortages have existed for years, but have become more widespread in
the past two years because consumer incomes have risen rapidly while
prices have remained relatively stable. The regime recognizes the
disparity between the supply of goods and purchasin try-
ing to meet the problem. A campaign to keep wage incrpeasesafromsout-
running productivity apparently is making headway, and price increases.
were enacted last fall for some consumer goods. More general price
increases are planned for 1962. Indications are now that consumption
will continue to increase moderately in 1962, but only if the regime
can continue to increase imports. The tighter control over the popu-
lace afforded the regime with the closing of the border gives it more
latitude than heretofore in making decisions on the growth of personal
consumption.
While the 13 August action allowed the regime to be more positive
in its control of the populace, it did nothing to clarif the
in planning for 1962. For the better e problems
part of 1961 the regime was ex-
pecting the Berlin crisis to come to a head by the end of the year,
The East Germans assumed that there would be either a West German or
an all-NATO embargo in 1962 after the signing of a peace treaty with
the.USSR at the end of 1961. Thus, in the summer of 1961, there were
two plans, one for each possibility--first the former and then the
latter contingency having been considered the more likely. However,
in October when Khrushchev abandoned the 1961 treaty deadline, the
assumption of an embargo was dropped and a new look at the plan had
to be taken.
Alternative plans for 1962 apparently have been circulated with-
in the State Planning commission (SPC) and among top party officials.
fate in the summer of 1961, a rate of industrial growth as low as 5.3
percent was being discussed within the SP/ In.October, at an economic
conference of the SED Central Committee, Karl Mewis, chairman of the
SPC, implied that the 1962 plan would schedule a higher rate of growth
than that planned for 1961, so that "beginning with 1963 we shall
again reach the targets of the Seven Year Plan" (an average annual,
rate of 9.4 percent for industry). The most recent information, how-
ever, indicates that the industrial
be between 6.5 and 7 growth rate set for 1962 will
percent somewhat lower than the 7.2 percent
planned for 1961. This projection came from a long-time SED planning
official, Gerhard Schuerer, who was reporting to an intra-governmental
group, and it may well have Soviet support. The USSR has participated
in almost every step of the planning process this year, and thus the
nature of the final 1962 plan will involve close, and probably prolonged,
consultations in Moscow.
January 1962 CIA/RR-CB-62-4
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Analyst:
Coord;
Sources:
25X1A
2.
4.
8 January 1962 CIA/RR-CB-62-4
25X1 C
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